ATHENS, March 8 (Reuters) - DBRS Morningstar upgraded Greece's credit rating to 'BBB' from 'BBB low' citing a healthier banking sector and the continued reduction in the country's general government debt ratio.

DBRS was one of the first rating agencies that upgraded Greece to investment grade in 2023. It also changed the outlook to stable from positive.

"The upgrade reflects Morningstar DBRS' view that legacy risks in the banking system have receded along with a continuation in over performance in fiscal targets," DBRS said in a press release.

Since 2020, the nation's debt, the highest in the euro zone, has shrunk by more than 40 percentage points, reaching 154% of its gross domestic product in 2024, and is projected to drop further by the end of this year.

Greece expects economic output to rise 2.3% in 2025, more than double the eurozone average. It also projects a primary budget surplus of 2.4% of GDP on higher investment and strong tourism revenue.

"This will likely facilitate a further significant reduction in the public debt-to-GDP ratio, which is projected to fall to below 140% by 2027," DBRS added.

Greece has seen a series of rating upgrades since autumn 2023, among them S&P Global Ratings Fitch, after 13 years in the junk category. Moody's is the only ratings agency that continues to place Greece one notch below the investment grade threshold.

Greek banks are steadying and returning to profit after they were nationalized following a financial meltdown in late 2009 due to the country's debt crisis, and needed several capital injections from the government.

They received European Central Bank approval last year to resume dividend payments for the first time in 16 years after they cut bad loan ratios, eliminated state ownership, and returned to profit.

(Reporting by Lefteris Papadimas; Editing by Chizu Nomiyama)

((lefteris.papadimas@thomsonreuters.com; +30 6944 248134; Reuters Messaging: lefteris.papadimas.reuters.com@reuters.net))